The Bank of Canada’s policy interest rate has changed; how does this affect my variable rate mortgage?

Whenever the Bank of Canada changes its policy rate, it is important to understand that mortgage lenders do not automatically change their prime rate. In fact, a bank’s prime rate may not even change at all or might not reflect the Bank of Canada’s policy rate increase or decrease. In real terms, a Bank of Canada lending rate decrease of 0.75 per cent may translate into a prime rate decrease of only 0.25 per cent at chartered banks and other mortgage lenders.

But why is this?

Mortgage lenders are not required to adjust their prime rate in accordance with the Bank of Canada’s policy interest rate. Consequently, mortgage lenders establish their prime rate in accordance with the costs and performance of their funds.

While some mortgage lenders will change their prime rate, be aware that some of them will immediately apply the adjustment on your mortgage loan, while others will only do it on the 1^st business day of the following month.

• Desjardins, Scotia Bank, B2B, TD Bank, Merix/Lendwise, Home Trust, National Bank

• First National, MCAP, Manulife, CIBC

So, what happens with the payment amount?

Again, this depends on your lender – some lenders will adjust the payment amount the following month, while others will keep a fixed amount, and others allow their customers to choose between a fixed amount or a variable amount.

• First National, MCAP, Scotia Bank, Merix/Lendwise, Home Trust, National Bank

• Desjardins, TD Bank, Manulife, CIBC

You have a variable rate and have questions that come to mind? Don’t hesitate to contact your broker to discuss this further.